Golden rules of investing state "Buy low and sell high." If one wants to pick scrip at a low price Micron Technology (MU, Financial) is the stock to buy and hold.
Micron Technology has not been a good performer in the recent times but has a potential to grow in the years to come. There are certain set of strengths and weaknesses that can be used towards evaluating the scrip.
Fundamentals
- The leverage ratio is fairly low at 0.60 and is less than that of the industry average, which means the management of debt levels are effective. The company also has the ability to cover short-term liquidity given its reasonable quick ratio of 1.62.
- While the company has reported somewhat volatile earnings recently, it is poised for EPS growth in the coming year. During the last financial year, Micron increased its bottom line by earning $2.55 versus $1.00 in the prior year. This year, the market expects an improvement in earnings ($2.67 versus $2.55).
- Micron's stock prices had come down by 46.41% which is worse than Standard & Poor's 500's performance. Given the stock's sharp decline last year, this is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry.
- The company due to change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and the Semiconductors and Semiconductor Equipment industry. The net income has significantly decreased by 39.1% when compared to the same quarter one year ago, falling from $806 million to $491 million.
Possible game changer
Last month, China's Tsinghua Unigroup’s Chairman; Zhao Weiguo; traveled to the United States to meet with board members of Micron Technology (MU.O) and try to rekindle hopes of a takeover bid that until now looked difficult to materialize. On an earlier occasion, Micron had dismissed an informal $23 billion offer fearing U.S. regulatory committee’s views on foreign acquisitions of sensitive U.S. companies.
Despite the initial bottlenecks and China’s grim market situation, Tsinghua Unigroup's chairman is keen on pulling the bid through. One must not forget that this takeover is slated to be the biggest takeover of a U.S. company by a Chinese entity. The hype that has already been created around it has the potential to send Micron's stock prices soaring.
The way forward
In my opinion; the company's strengths can be seen in multiple areas, such as its largely solid financial position with increasing profit margins, low leverage ratio by most measures and reasonable valuation. However, as a counter to these strengths, I also find weakness in deteriorating net income, weak operating cash flow and a generally disappointing performance in the stock itself. I would recommend a strong buy given its current stock price and also the fact that China's Tsinghua Unigroup has approached the company regarding a takeover bid. Hence the scrip is poised to grow in years to come.
